BuilderRadio Press Room

While the days of “NINJA loans” (no income, no job, no assets) are for the most part gone from the American mortgage marketplace, at least one housing think tank says the pendulum has now swung too far in the other direction and made it harder for many Americans to get a mortgage.

According to an analysis released in August from the Washington, D.C.-based Urban Institute, which “offers solutions through economic and social policy research,” the pool of mortgage loans made between 2011 and 2015 have even lower default rates than the more “normal” lending period of 1999 to 2003, when less than 2% of the loans defaulted after 10 years. By comparison, 12% to 13% of the mortgage loans made at the height of the housing bubble between 2006 and 2007 defaulted within 10 years of their origination, the Urban Institute said in August, citing Fannie Mae’s data.

The Urban Institute noted that of Fannie Mae- and Freddie Mac-backed loans made after 2011 and through the first quarter of 2015, 69% of the borrowers had FICO scores better than 750. Between 1999 and 2003, only a third of people with such mortgages had a credit score that high. Less than 1% of loans that have been made after 2011 have defaulted, according to Fannie Mae’s data, the Urban Institute said, even for those borrowers with FICO scores under 700.

Only “the best borrowers are getting loans today and these loans are so thoroughly scrubbed and cleaned before they’re made that hardly any of them end up going into default,” wrote Laurie Goodman, co-director of the Urban Institute’s Housing Finance Policy Center in an Aug. 31 blog post on the institute’s website. “A near-zero-default environment is clear evidence that we need to open up the credit box and lend to borrowers with less-than-perfect credit,” she wrote.

By comparison, the Mortgage Bankers Association’s credit availability index, which tracks the relative ease (or difficulty) of obtaining a mortgage by factoring in data such as credit scores, guidelines from institutional loan buyers and appetite for risk , shows that while credit availability has dramatically increased since 2011, it has plateaued since the middle of last year, and is well below the levels of 2004, the last “normal” year of lending and credit scores.

Still, during the crash, a larger percentage (and because of the boom, a larger volume) of the lowest-qualified buyers did default. According to Fannie Mae’s data, 25% and 30% of loans made to the least-qualified borrowers — people with FICO credit scores lower than 700 and loan-to-value ratios higher than 80% — between 2006 and 2007 defaulted. By comparison, only 5% of people with similar credentials defaulted between 1999 and 2003, the Urban Institute said.

But Urban Institute’s analysis takes issue with the conventional wisdom that the housing market crashed because so many more lower-qualified borrowers got mortgages than previous housing booms. While one-third of the borrowers in the 2006 to 2007 mortgage pools had FICO scores lower than 700, it was no different than the one-third with similarly low scores that made up the mortgage pool from 1999 to 2004, the Urban Institute said.

“What changed was that there was a toxic mess of bad loan products in the 2006 and 2007 pool such as exploding ARM’s and liar loans,” said Sheryl Pardo, associate director of communications with the Urban Institute. “The credit profile of the borrower did not change,” she said. By comparison, just 10% of mortgage borrowers between 2011 and 2015 had credit scores lower than 700, according to the Urban Institute.

The Urban Institute also noted that as a result of the Dodd-Frank financial reform law and other changes mandated by the Consumer Financial Protection Bureau, loan officers are spending more time on mortgage applications, from one hour per application in 2002 to five hours per application in 2015, with the number of monthly retail applications processed per mortgage underwriter falling from 179 in 2002 to 34 a year ago.

“Given this environment of meticulous underwriting, borrowers with lower credit scores may well perform better than their counterparts performed in the past,” Goodman wrote.

The drumbeat of hammers echoes most mornings through suburban Denver, where Jay Small, the owner of company that frames houses, is building about 1,300 new homes this year.

That’s more than triple what he built a few years ago, when “you couldn’t buy a job” in the residential construction industry, he said.

Now, builders can’t buy enough workers to get the job done.

Eight years after the housing bust drove an estimated 30 percent of construction workers into new fields, homebuilders across the country are struggling to find workers at all levels of experience, according to the National Association of Homebuilders. The association estimates that there are approximately 200,000 unfilled construction jobs in the U.S. – a jump of 81 percent in the last two years.

The ratio of construction job openings to hiring, as measured by the Department of Labor, is at its highest level since 2007.

“The labor shortage is getting worse as demand is getting stronger,” said John Courson, chief executive of the Home Builders Institute, a national nonprofit that trains workers in the construction field.

The impact is two-fold. Without enough workers, residential construction is trailing demand for homes, dampening the overall economy.

And with labor costs rising, homebuilders are building more expensive homes to maintain their margins, which means they are abandoning the starter home market. That has left entry-level homes in tight supply, shutting out many would-be buyers at a time when mortgage rates are near historic lows.

Nationwide, there are 17 percent fewer people working in construction than at the market peak, with some states – including Arizona, California, Georgia and Missouri – seeing declines of 20 percent or more, according to data from the Associated General Contractors of America.

The labor shortage is raising builders’ costs – and workers’ wages – and slowing down construction.

Small, the Denver builder, estimates that he could construct at least 10 percent more homes this year if he had enough workers. But he remains short-staffed, despite raising pay to levels above what he paid during the housing bubble a decade ago.

“It’s getting to the point where you’re really limited in what you can deliver,” Small said. “We lost so many people in the crash, and we’re just not getting them back.”

HIGHER COSTS

The average construction cost of building a single family home is 13.7 percent higher now than in 2007, even as the total costs of building and selling a house – a figure that includes such items as land costs, financing and marketing – are up just 2.9 percent over the same period, according to a survey by the National Association of Homebuilders.

The problem is accentuated by strong demand for newly constructed homes, with sales reaching a nine-year high in July.

Private companies say that they are having a hard time attracting workers, and they are often forced to give employees on-the-spot raises to prevent them from going to competitors. Carpenters and electricians are often listed as the most in-demand specialties.

Tony Rader, the vice president of Schwob Building Company, a general contractor in the Dallas area, said his company has started handing out flyers at sporting events, churches and schools in hopes of luring more people into the field.

“The biggest problem I face every day is where are we going to find the people to do the work,” he said, adding that it’s becoming increasingly common for his company and others to turn down projects.

Dallas contractors are fighting over the limited supply of workers as three major mixed-use projects are going up right next to each other on the so-called “$5 billion mile” in Frisco, a northern suburb. Meanwhile, the metropolitan area is adding about 30,000 newly built homes annually.

With fewer workers, contractors are becoming wary of signing new work contracts, especially as many of them include fines for not completing a job by a designated date.

“I’ve got two lawsuits right now where it may cost us mid-six-figures because there’s not enough labor out there to get it done,” said one contractor in the North Dallas area who declined to be identified.

Lawyers in hot residential markets say that it is becoming increasingly common for construction companies to try to negotiate for more time.

“Subcontractors are having a hard time staffing up,” said Edward Allen, a Denver attorney who said he has seen more lawsuits over project delays in the past two years.

GUARANTEED WORK, FEW TAKERS

Colorado alone will need 30,000 more workers in the construction field in the next six years, a number that does not account for those who will retire, according to a study by the Association of General Contractors.

The state passed a bill last year pledging $10 million over three years to fund free training for plumbers, electricians and carpenters.

Yet Michael Smith, who heads a Denver-based nonprofit that administers the training, said that he can’t fill the seats. High schools are focused on preparing students for college, ignoring those that may be better suited for vocational work. Students may be put off by construction’s reputation as a dangerous, cyclical field, he said.

“We’ve so demonized working with your hands in this country,” he said. “We’ve got a booming economy, and we can’t keep up with the pace of growth.”

Students who go through the four-week program are all but guaranteed a job paying $16 an hour or more immediately, with the possibility of commanding $80,000 or more in annual income after five years without taking on any student debt, he said.

On-the-job training is also a common path for new workers. Eduardo Salcido – a 25-year-old concrete finisher working at a 232-home Toll Brothers subdivision going up in the Denver suburb of Broomfield – said that he received on-site training after entering the construction field as a painter.

He has earned one raise since beginning the training two years ago and is now certified as a semi-skilled finisher.

”The money’s not bad,” he said.

Homebuilders are increasingly desperate to bring back in fully skilled laborers such as Greg Lewis, a 43-year old journeyman carpenter in St. Louis. After struggling to find work in 2010, Lewis started making leather goods at home and selling bags, belts and wallets online. He now operates his business fulltime under the name Made Supply Co.

Even though he’s making less than he did in construction, Lewis is not tempted to go back into a field that is marked by job insecurity, he said. His former co-workers have gone on to work in warehouses or a local General Motors plant, and most are choosing not to return to their old jobs even as contractors offer higher wages.

“Guys couldn’t wait around for their next job, and now they don’t want to go back to a field that could turn on them,” he said. “It’s either hot or cold, and you just can’t trust it.”

(The story was refiled to correct typo in the eighth paragraph to change “may” to “many”)

(Reporting by David Randall in New York. Additional reporting by Keith Coffman in Denver. Editing by Brian Thevenot.)

Since 1987, NAR’s Profile of Home Buyers and Sellers has tracked the number of weeks on the market a home is listed.

In 2014 and 2015, homes sold on the market at a median of four weeks. This is the shortest time homes have sold on the market in the last twenty years. In 2001, 2004, and 2005 at the height of the housing market, homes also sold within a month of being listed. The last two years—2014 and 2015—the time on market declined due to a lack of inventory for available homes.

As the market downturn began in parts of the country, the median time on market for homes started to creep up to six weeks and later to eight weeks in 2006 and 2008 respectively. More distressed homes were put on the market and there were fewer buyers, pushing the time up. By 2009, homes sold at a median of 10 weeks. This was partly attributed to the U.S. government’s cash infusion issued to first-time home buyers in the form of a tax credit, spurring more buyers into the market and pushing up demand.

In the consecutive two years in 2010 and 2011, the median weeks on market drops back down eight and nine weeks respectively as investors jumped in to snatch up cheaper properties, often competing with first-time home buyers. Time on market then hit a peak in 2012 at eleven weeks. This number falls drastically to five weeks the following year in 2013, indicating tight inventory, tight credit availability, and a lack of new construction of homes to keep up with demand.

If there’s one thing that characterizes the residential real estate market for most of the past four years, it’s that the supply of homes for sale has been low, low, low. Month after month, buyers have told us in our surveys that the biggest challenge they face in making a purchase is simply finding a home that meets their needs.

For the past 47 months straight, the level of existing housing inventory—the overall supply of houses available on the market—has never exceeded 6 months worth. In July, the National Association of Realtors® reported that we had a 4.7-month supply of existing homes; the new-home supply in July was even lower. (Six to seven months of supply is typical of a balanced supply-and-demand market.) Inventory might be low, but demand is still high. The number of home buyers visiting realtor.com® in August was up 16% over last August. And yet the number of homes for sale was down 8%.

But a startling thing happened in August. Finding a home was no longer the No. 1 reported issue holding back buyers. No, the new No. 1 problem was time—as 35% of buyers said they had just started to explore so were not ready yet to buy.

Indeed, in August, 59% of buyers had been looking for less than three months. The number of people just starting to explore went up last August as well, but not as dramatically, nor did they represent the majority of active buyers.

OK, so what’s going on here, anyway?

The high number of those just starting to dip their toes into the market this year is related to a sizable shift toward first-time buyers. Last August, 35% of buyers identified themselves as first-time buyers. This August, the share of first-time buyers jumped to 51%.

As a result, new challenges, mainly financial, are also emerging as more of a concern for the market. After all, the supply-demand imbalance has also been driving up home prices.

This August, 9.4% of buyers reported having difficulty qualifying for a mortgage. That was up from 5.6% last year.

The need to improve credit scores doubled as a problem from last year, increasing from 9.7% of all buyers in 2015 to 19.5% this August.

And not having enough funds for a down payment? That rose from 16% last year to 25% this year.

The market has seen growth despite higher prices in part because of pent-up demand from very qualified buyers who were able to meet the challenging mortgage qualifications that are the norm these days. You want proof? Just check out the higher average credit scores on purchase mortgages.

A key question for the months ahead is whether a higher share of first-time buyers is ready or capable of qualifying for a loan and closing on a house.

If you are among those first-time buyers who are just starting to look, there are a few things that you can do now that will improve your chances of success in the future:

Get your financial house in order. Know your FICO score, and work to get it above 700 to improve your ability to qualify and to get a better rate.

Understand what you can afford to put down. The average down payment this year is 11% nationally, but it varies dramatically by market and by loan type. If you are struggling to come up with a down payment necessary for your market or type of mortgage, research down payment assistance programs.

Get all of your financial records organized, including recent bank and financial statements, the past two years of income tax filings, and pay stubs.

Record the details of any debts you may have, from revolving credit card balances to car payments and student loans. You will need all of this before you can work with a lender.

Finally: Find a lender and get pre-approved. We still have very limited supply, so being pre-approved continues to be a key part of a successful buying strategy if you intend to finance a purchase with a mortgage. A pre-approval letter as part of an offer will communicate to the seller that you have the ability to close.

Jonathan Smoke is the chief economist of realtor.com, where he analyzes real estate data and trends to develop market insights for the consumer.